Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 to the Proposed Rule Change by the New York Stock Exchange, Inc., Relating to NYSE Rules 342, ``OfficesApproval, Supervision and Control,'' 440, ``Books and Records,'' and 472, ``Communications With the Public''

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37941; File No. SR-NYSE-96-26]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change and Amendment No. 1 to the Proposed Rule Change by the New York

Stock Exchange, Inc., Relating to NYSE Rules 342, ``Offices--Approval,

Supervision and Control,'' 440, ``Books and Records,'' and 472,

``Communications With the Public''

November 13, 1996.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on

September 12, 1996, the New York Stock Exchange, Inc. (``NYSE'' or

``Exchange'') filed with the Securities and Exchange Commission

(``SEC'' or ``Commission'') the proposed rule change as described in

Items I, II and III below, which Items have been prepared by the self-

regulatory organization.\1\ The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.

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\1\ On November 7, 1996, the NYSE amended NYSE Rule 440, ``Books

and Records,'' to indicate that members must preserve books and

records as required under SEC Rule 17a-3 and comply with the

recordkeeping format, medium and retention period specified in SEC

Rule 17a-4. In addition, the NYSE amended paragraph (c) of NYSE Rule

472, ``Communications with the Public,'' to clarify that records

retained must be readily available to the Exchange, upon request.

See Letter from James E. Buck, Senior Vice President and Secretary,

NYSE, to Katherine A. England, Assistant Director, Division of

Market Regulation (``Division''), Commission, dated November 6, 1996

(``Amendment No. 1''). In addition, the NYSE submitted a draft of an

information memo to members which explains the proposed changes to

the Exchange's rules governing supervision and review of

communications with the public. See Letter from Donald Van Weezel,

Managing Director, Regulatory Affairs, NYSE, to Katherine A.

England, Assistant Director, Division, Commission, dated November 5,

1996 (``NYSE Information Memo'').

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

Currently, Supplementary Material .16, ``Supervision of registered

representatives,'' to NYSE Rule 342, ``Offices--Approval, Supervision,

and Control,'' requires supervisors to review the correspondence of

registered representatives. The NYSE proposes to amend Exchange Rule

342.16 to provide that the supervision of registered representatives

will ordinarily include, among other things, reasonable procedures for

review of registered representatives' communications with the public

relating to their business. Under NYSE Rule 342.16, as amended, such

policies and procedures should be in writing and be designed to

reasonably supervise each registered representative. The NYSE also

proposes to adopt NYSE Rule 342.17, ``Review of communications with the

public,'' which will require members to develop written policies and

procedures for review of public communications relating to their

business that are appropriate for the member's business, size,

structure and customers. The Exchange proposes to amend NYSE Rule 472,

``Communications with the Public,'' to require prior approval of each

advertisement, market letter, sales literature, or other similar

communication which is generally distributed or made available to

customers or the public, rather than require prior approval of any

communication which is generally distributed or made available to

customers or the public. In addition, NYSE Rule 472, as amended,

provides that research reports must be approved in advance by a

supervisory analyst. Finally, the NYSE proposes to amend Exchange Rule

440, ``Books and Records,'' to indicate that members must preserve

books and records as required under SEC Rule 17a-3 and comply with the

recordkeeping format, medium and retention period specified in SEC Rule

17a-4.

The text of the proposed rule change is available at the office of

the Secretary, NYSE, and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization

included statements concerning the purpose of and basis for the

proposed rule change and discussed any comments it received on the

proposed rule change. The text of these statements may be examined at

the places specified in Item IV below. The self-regulatory organization

has prepared summaries, set forth in sections (A), (B), and (C) below,

of the most significant aspects of such statements.

[[Page 58920]]

(A) Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

(a) Purpose

According to the NYSE, new technology and new means of

communication (e.g., e-mail and the Internet) have and will continue to

impact and change the way member organizations and their associated

persons conduct business and communicate with customers and other

members of the public. The NYSE states that the Exchange has been

working with a committee composed of member organization

representatives to study questions that have arisen as a result of

those communications means with emphasis on supervision and review. As

a result, the Exchange has developed and is proposing amendments to

NYSE Rules, 342, 440, and 472.

NYSE Rule 342.16, as amended, will provide that supervision of

registered representatives will ordinarily include, among other things,

reasonable procedures for review of registered representatives'

communications with the public relating to a member or member

organization's business. The proposal states that such policies and

procedures should be in writing and designed to provide reasonable

supervision of each registered representative. Evidence that the

supervisory policies and procedures have been implemented and carried

out must be maintained and made available to the NYSE upon request. In

developing supervisory systems, the NYSE notes that members should

specify, among other things, what is to be pre- or post-reviewed, the

level and qualifications of persons who will conduct the reviews, the

frequency of review, and how the review will be evidenced.\2\

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\2\ See NYSE Information memo, supra note 1.

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New NYSE Rule 342.17 will require each member and member

organization to develop written policies and procedures for review of

incoming and outgoing communications with the public relating to its

business, tailored to its structure and the nature and size of its

business and customer base.\3\ Under the proposal, prior review of

outgoing correspondence (other than research reports and

advertisements; market letters, sales literature, and similar types of

communication) and review of all incoming correspondence will no longer

be required.\4\ However, any organization that does not conduct pre-use

review (whether electronic or manual) will be required to:

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\3\ In developing supervisory procedures for the review of

communications with the public, the NYSE notes that members should

consider the appropriateness of implementing uniform firm-wide

procedures or procedures tailored to specifics (e.g., functions,

offices/locations, individuals, groups of persons or specific

registration categories). In this regard, the NYSE states that

members may consider such factors as ``the number, size and location

of offices, the volume of communications overall and in specific

areas of the organization, the activities conducted by registered

representatives and other applicable persons, the nature and extent

of training provided, the complaint and overall disciplinary record,

if any, of registered representatives and other applicable persons

(with particular emphasis on complaints regarding written or oral

communications with clients) and the overall experience levels of

applicable persons using communications media.'' See NYSE

Information Memo, supra note 1.

\4\ The NYSE plans to delete from the NYSE Interpretation

Handbook interpretation /04 to NYSE Rule 342 (a) and (b) regarding

review and retention of incoming mail. See Letter from Don Van

Weezel, Managing Director, Regulatory Affairs, NYSE, to Katherine A.

England, Assistant Director, Division, Commission, dated November 5,

1996. The NYSE states that members' supervisory systems should

provide specific processes for the receipt and handling of incoming

checks and customer complaints as well as standards for

communications to include permitted and prohibited activities and

any restrictions imposed by the member upon such communications. See

NYSE Information Memo, supra note 1.

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Regularly educate and train employees as to the

organization's current policies and procedures governing review of

communications;

Document how and when employees are educated and trained;

and

Monitor and test to ensure implementation and compliance

with such policies and procedures.

The NYSE proposes to amend NYSE Rule 472(a) to clarify the types of

communications that will continue to require pre-use approval (e.g.,

advertisements, market letters, sales literature, and other similar

types of communications).\5\ In addition, the NYSE proposes to amend

Exchange Rule 472(b) to clarify that research reports must continue to

be prepared or approved in advance by a supervisory analyst. The

Exchange notes that pre-approval of ``any'' communication which is

distributed or made available to customers or the public will no longer

be required.\6\ The NYSE proposes to amend Exchange Rule 472(c) to

provide that the names of persons who prepared and who reviewed and

approved communications with the public must be readily ascertainable

from the retained records.

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\5\ Specifically, under NYSE Rule 472, as amended, each

advertisement, market letter, sales literature or other similar type

of communication which is generally distributed or made available by

a member to customers or the public must be approved in advance. In

addition, research reports must be prepared or approved in advance

by a supervisory analyst.

\6\ See proposed NYSE Rule 342.17 requirements for organizations

not conducting pre-use reviews.

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The standards for communications set forth in NYSE rule 472 will

continue to apply to all communications regardless of the transmission

medium used or the policies and procedures for review and supervision

adopted by members and member organizations pursuant to NYSE Rule 342.

Finally, the NYSE proposes to amend Exchange Rule 440 to recognize

that members must preserve books and records as required under SEC Rule

17a-3 and comply with the recordkeeping format, medium and retention

period specified in SEC Rule 17a-4.

(b) Basis

The NYSE believes that the proposed rule change is consistent with

the requirements of the Act and, in particular, furthers the objectives

of Section 6(b)(5), in that it is designed to prevent fraudulent acts

and practices, to promote just and equitable principles of trade and,

in general, to protect investors and the public interest. In addition,

the NYSE believes that the proposed amendment to NYSE Rule 440 ensures

compliance with Rules 17a-3 and 17a-4 under the Act.

(B) Self-Regulatory Organization's Statement on Burden on Competition

The Exchange believes that the proposed rule change will not impose

any burden on competition that is not necessary or appropriate in

furtherance of the purposes of the Act.

(C) Self-Regulatory Organization's Statement on Comments on the

Proposed Rule Change Received From Members, Participants or Others

No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of publication of this notice in the

Federal Register or within such longer period (i) as the Commission may

designate up to 90 days of such date if it finds such longer period to

be appropriate and publishes its reason for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

(a) by order approve such proposed rule change, or

(b) institute proceedings to determine whether the proposed rule

change should be disapproved.

[[Page 58921]]

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

Copies of the submission, all subsequent amendments, all written

statements with respect to the proposed rule change that are filed with

the Commission, and all written communications relating to the proposed

rule change between the Commission and any person, other than those

that may be withheld from the public in accordance with the provisions

of 5 U.S.C. 552, will be available for inspection and copying at the

Commission's Public Reference Section, 450 Fifth Street, N.W.,

Washington, D.C. Copies of such filing will also be available for

inspection and copying at the principal office of the above-mentioned

self-regulatory organization. All submissions should refer to the file

number SR-NYSE-96-26 and should be submitted by December 10, 1996.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\7\

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\7\ 17 CFR 200.30-3(a)(12) (1995).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-29550 Filed 11-18-96; 8:45 am]

BILLING CODE 8010-01-M